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May 30, 2013

U.S. Trade Representative Issues 2013 Special 301 Report

On May 1st, Acting U.S. Trade
Representative (USTR) Demetrius Marantis issued the 2013 Special 301
Report. According to the USTR website,
the Report "demonstrates U.S. resolve to take strong action to
support critical jobs and exports in IP-intensive industries." "The actions reflected in this
year's report send a message to all trading partners on the Priority Watch List
and the Watch List that the United States is prepared to use the Special 301
process to its full effect, both to recognize positive action and, where
necessary and appropriate, to identify deterioration of the IPR protection and
enforcement systems that play such a vital role in international trade,"
according to USTR Marantis. The USTR Report "demonstrates U.S. resolve to take strong action to support critical jobs
and exports in IP-intensive industries," according to the website
announcement, and "regrets" the inclusion of Ukraine, which "earned the
first new Priority Foreign Country designation in 11 years" as the result
of its "severely deteriorating
climate for IPR protection and market access," and "call[s] upon that government to
reverse recent backsliding and swiftly resolve the problems identified" in
the Report. This action follows last year's inclusion of Ukraine on the
Priority Watch List "in light of serious and growing concerns relating to
counterfeiting and rampant piracy." On the other hand, the Reporthails
Canada for making "long-awaited
progress on concerns identified in past reports."

The Report is promulgated pursuant to
Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and
Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in
1994). The Trade Representative is required under the Act to "identify
those countries that deny adequate and effective protection for IPR or deny
fair and equitable market access for persons that rely on intellectual property
protection." The Trade Representative has implemented these
provisions by creating a "Priority Watch List" and "Watch List." Placing a country on the Priority Watch List or Watch List is used to indicate
that the country exhibits "particular problems . . . with respect to IPR
protection, enforcement, or market access for persons relying on intellectual
property." These watch lists are reserved for countries having "the
most onerous or egregious acts, policies, or practices and whose acts,
policies, or practices have the greatest adverse impact (actual or potential)
on the relevant U.S. products."

This Report, on the state of intellectual
property rights worldwide, identifies ten countries on a "Priority Watch
List" and another 30 countries on the "Watch List," all relating
to deficiencies in intellectual property protection in these countries. The Priority Watch List in the Report lists Algeria, Argentina, Chile, Chine, India,
Indonesia, Pakistan, Russia, Thailand, and Venezuela, with Canada and Israel
exiting the list compared with last year's Report. Countries on this list
"do not provide an adequate level of IPR protection or enforcement, or
market access to persons relying on intellectual property protection."
On the Watch List this year are Barbados, Belarus, Bolivia, Brazil, Bulgaria,
Canada, Columbia, Costa Rica, Dominican Republic, Ecuador, Egypt, Finland,
Greece, Guatemala, Israel, Italy, Jamaica, Kuwait, Lebanon, Mexico, Paraguay, Peru,
Philippines, Romania, Tajikstan, Trinidad and Tobago, Turkey, Turkmenistan,
Uzbekistan, and Vietnam; compared to last year, Brunei and Norway have been
removed from the list and Canada is on the list this year, with Ukraine having
been moved to the Priority Watch List. The Report lists a "wide range of concerns, including the continued deterioration in
IPR protection, enforcement, and market access for persons relying on IPR in
Ukraine; the growing problem of misappropriation of trade secrets in China and
elsewhere; troubling 'indigenous innovation' policies that may unfairly
disadvantage U.S. rights holders in China; the continuing challenges of
copyright piracy over the Internet in countries such as Brazil, Italy, and
Russia; and other ongoing, systemic IPR enforcement issues presented in many trading
partners around the world." Despite these concerns, the Report
evinces a desire to "work[] closely with the governments of [U.S.] trading
partners [identified in the Report] to address both emerging and continuing
concerns, and to build on the positive results many of these governments have
achieved."

The Report notes that public response to a
Federal Register Notice used to prepare the Report continued the "enhanced
approach to public engagement" instituted last year, with the USTR
receiving 41 comments (access to these comments is provided at www.regulations.gov, docket
number USTR-2012-0022). In addition, 13 witnesses provided testimony at a
public hearing on February 20, 2013; these witnesses included "representatives
of foreign governments, industry, and non-governmental organizations"
(available on the USTR website).

The Report notes some "positive
developments" in the past year, including copyright amendments in the
Bahamas that benefited U.S. copyright holders, and the removal of Brunei
from the Watch List due to its "significantly increased its focus on IPR
protection and enforcement in recent years, through substantial and meaningful
enforcement efforts, including both civil and -- for the first time -- criminal
actions." Also, "Canada
enacted the long-awaited Copyright Modernization Act in 2012, which, among
other things, is designed to implement Canada's obligations under the WIPO
Internet Treaties and address the challenges of copyright piracy in the digital
age" which garnered U.S. approval, and Israel "enacted a law
improving its procedures for the publication of patent applications." China was lauded in the Report for the
decision by the Supreme People's Court "on the liability of Internet intermediaries
('Rules of Supreme Court on Several Issues Concerning the Application of Law in
Adjudication of Civil Disputes Related to Infringement of Right of Communication
over Information Networks')." The
Report also extolled Russia for developing an "IPR Action Plan" with
the U.S. directed towards "the areas of greatest mutual concern in IPR
protection and enforcement," which include enactment of laws for a
specialized IPR court and amendments to the Russian criminal code "to
revise criminal thresholds for copyright piracy." Panama, the Philippines,
Taiwan and Turkey were also noted for positive measures adopted by their
governments in 2012.

Several initiatives were also
mentioned. As in the 2012 Report, these included the Trans-Pacific
Partnership Agreement, between the U.S. and Australia, Brunei Darussalam,
Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam, and in addition,
Canada, Mexico, and Japan; the Transatlantic Trade and Investment Partnership
between the U.S. and the EU; actions by the World Trade Organization in support
of IP rights; the Anti-Counterfeiting Trade Agreement (ACTA) between the U.S. and
Australia, Canada, Japan, South Korea, Mexico, Morocco, New Zealand, Singapore,
with Japan becoming the first signatory to deposit its instrument of acceptance;
bilateral and regional initiatives, including free trade agreements and Trade
and Investment Framework Agreements; and the USTR Trade Preference Program
Reviews such as the Generalized System of Preferences (GSP) program relating to
Russia, Lebanon, and Uzbekistan, and regional programs including the Caribbean
Basin Economic Recovery Act (CBERA). Finally, the Representative "looks
forward to continuing engagement with trading partners in bilateral, regional,
and multilateral fora to improve the global IPR environment"; including
the U.S.-EU Summit, and in the Asia Pacific Economic Cooperation (APEC) forum,
and the Organization for Economic Cooperation and Development (OECD).

The Report contains a section on "best
practices" among U.S. trading partners, including "encourage[ing]
trading partners to work with the United States to develop mutually agreed-upon
action plans to advance the protection and enforcement of IPR,"
specifically noting the "action plan" with Russia. Cooperation
between governments is also mentioned, as well as "innovative mechanisms
that enable government and private sector rights holders to voluntarily donate
or license IPR on mutually-agreed terms and conditions." These include the use of existing IPR to
advance policy goals and innovation, specific examples of which are the
Medicines Patent Pool under the auspices of the World Health Organization and
the WIPO Re:Search Consortium among the U.S., Brazil and South Africa.

There is a section of the Report again this
year regarding "capacity building efforts" that relate to "opportunities
for the U.S. Government to work closely with trading partners to address [IPR]
concerns." These efforts are described in the Report as being
directed to "building stronger, more streamlined, and more effective
systems for the protection and enforcement of IPR," which seems to include
an effort to encourage U.S. trading partners to enact criminal penalties for
IPR infringement. The Report documents the efforts of the USPTO's Global
Intellectual Property Academy (GIPA) to provide training ("9,217 foreign
IP officials from 130 countries through 140 separate programs") as well as
programs administered by other U.S. government agencies (including the USPTO's
Office of Policy and External Affairs; the International Trade Administration;
the Bureau of Customs and Border Protection; the Commercial Law Development
Program and programs in law enforcement administered by the Departments of
Justice and Homeland Security).

A significant part of the Report focuses
on "trends" in counterfeiting and copyright piracy, as it has in
other years. This area "continue[s] on a global
scale," according to the Report, "involving the mass
production and far-reaching sales of a vast array of fake goods, including
counterfeit semiconductors, medicines, health care products, food and
beverages, automobile parts, such as air bags, aircraft parts, apparel and
footwear, toothpaste, shampoos, razors, electronics, batteries, chemicals,
sporting goods, motion pictures, and music." The Report recites a "[s]ustained
growth in piracy of copyrighted products in virtually all formats," which "offer
enormous profits and little risk." Online sales of counterfeit goods
"will soon surpass the volume of such goods sold" in physical
markets, which raise "difficulties" for IPR enforcement. Also
noted is an increase in legitimate businesses, such as courier services,
enlisted to deliver infringing goods, as well as the practice of producing the
goods and the counterfeit labels separately, specifically citing Canada and
Vietnam for such practices. There is also the emergence of "Media Box
piracy," defined as a situation "whereby 'boxes,' often with
capability to play high definition content, are loaded with large quantities of
pirated works. These boxes may be sold with preloaded content, but can later
have new content uploaded for a relatively low fee. Boxes may be purchased
online, with the user's chosen content, and delivered via postal service, or
may have online capabilities allowing consumers to download infringing content
from the Internet or through downloadable apps. This problem has been reported
in China, Indonesia, Malaysia, Taiwan, Thailand, and Vietnam."

The Report calls for "[s]tronger and
more effective criminal and border enforcement" to reverse these
trends. Another "growing" problem is counterfeit
pharmaceuticals, either final drug product or active pharmaceutical ingredients
(API); Brazil, China, India, Indonesia, Lebanon, Peru, and Russia are cited as
countries where the former type of counterfeiting is a problem and China is
cited as being a "major source" of counterfeit APIs.

Another section of the Report is concerned
with digital piracy, particularly over the Internet, which is "a
significant concern in many U.S. trading partners." The "increased
availability of broadband Internet connections around the world . . . has []
made the Internet an extremely efficient vehicle for disseminating
copyright-infringing products, replacing legitimate markets for rights holders,"
according to the Report. Piracy is a "significant"
concern, with "[u]nauthorized retransmission of live sports telecasts over
the Internet" being singled out as "a growing problem." New
technologies, including media boxes as discussed above, are also recognized to
be a problem, with "U.S. copyright industries also report[ing] growing
problems with piracy using mobile telephones, tablets, flash drives, and other
mobile technologies." Further
mentioned are the "emergence of private servers, which permit "cloud-based
entertainment software" to have access to such unauthorized servers "to
play copyrighted video games that are made available through hacked software
and/or circumvention of the rights holders' technological protection measures." In this regard, the Report specifically calls
out SlySoft, "a company headquartered and operating in Antigua, which
developed and sells a program called 'Any DVD HD' enabling the user to defeat
the encryption technology embedded in Blu-ray Discs that prevents unauthorized
reproduction and distribution," operating despite an Antiguan law
prohibiting "manufacture or import for sale or rental any such
circumvention device." Despite
cooperation between the Antiguan government and a "consortium of
electronic manufacturers, software companies, and motion picture studios that
developed these technological protection measures," progress on changing
Antiguan law is deemed "slow" in the Report.

The Report asserts that the U.S. "will
work with its trading partners to combat these growing problems," and
urges U.S. trading partners to "adequately implement the WIPO Internet Treaties." The Report specifically recites a list of trading partners that includes Argentina,
Belarus, Brazil, Chile, China, Colombia, India, Indonesia, Italy, Mexico,
Philippines, Romania, Russia, Spain, Switzerland, Taiwan, Thailand, Turkey,
Ukraine, Venezuela, and Vietnam in this regard, and Switzerland is "strongly
encourage[d] . . . to combat online piracy vigorously."

Trade secrets and forced technology
transfer are identified as problems in "a wide variety of industry sectors"
that include "information and communication technologies, services,
biopharmaceuticals, manufacturing, and environmental technologies." The
threat of trade secret misappropriation is "increasing," particular
with regard to electronic espionage. Particularly noted in the Report in this regard is China, with trade secret
theft involving "departing employees, failed joint ventures, cyber
intrusion and hacking, and misuse of information submitted to government
entities for purposes of complying with regulatory obligations," with
remedies in China being "difficult to obtain." "Chinese actors are the world's most
active and persistent perpetrators of economic espionage," according to
the U.S. National Counterintelligence Executive, with recent evidence
indicating that "actors affiliated with the Chinese military and Chinese
Government have systematically infiltrated the computer systems of over one
hundred U.S. companies and stolen hundreds of terabytes of data, including all
forms of trade secrets, such as proprietary technology, manufacturing
processes, and confidential business information."

The Report cited a publication by the
U.S. Intellectual Property Enforcement Coordinator on February 20, 2013 of "Administration
Strategy on Mitigating the Theft of U.S. Trade Secrets," which "highlights
U.S. efforts to combat the theft of trade secrets that could be used by foreign
governments or companies to gain an unfair economic advantage by harming U.S.
innovation and creativity." These
include:

• "Focusing diplomatic efforts to
protect trade secrets overseas;• Promoting voluntary best practices by
private industry to protect trade secrets, including information security,
physical security, and human resources policies;• Enhancing domestic law enforcement
operations, especially through the activities of the Department of Justice,
Federal Bureau of Investigations, Department of Defense, and the National IPR
Coordination Center; • Improving domestic legislation to protect
against trade secret theft, [and]• Conducting public awareness campaigns
and stakeholder outreach to encourage all stakeholders to be aware of the
dangers of trade secret theft."

The Report also notes that "threat of
trade secret theft is not the only way that foreign actors may seek to
undermine U.S. commercial advantages," and urges U.S. trading partners to "eject
trade-distortive policies," which include:

• Requiring the transfer of technology as
a condition for allowing access to a market, or for allowing a company to
continue to do business in the market;• Directing state-owned enterprises in
innovative sectors to seek non-commercial terms from their foreign business
partners, including with respect to the acquisition and licensing of IPR;• Failing to effectively enforce IPR,
including patents, trademarks, trade secrets, and copyrights, thereby allowing
firms to gain competitive advantages from their misappropriation or
infringement of another's IPR;• Failing to take meaningful measures to
prevent or deter cyber intrusions;• Requiring use of, or providing
preferences to, products or services in which IPR is either developed or owned
locally, including with respect to government procurement;• Manipulating the standards development
process to create unfair advantages for domestic firms, including with respect
to the terms on which IPR is licensed;• Requiring unnecessary disclosure of
confidential business information for regulatory approval, or failing to
protect such information.

As it has for the past few years, the
Report contains a section on "Intellectual Property and Health Policy,"
again specifically mentioning the 2001 Doha Declaration on the TRIPS
Agreement. The Report states that the Declaration "recognized the
gravity of the public health problems afflicting many developing and
least-developed countries, especially those resulting from HIV/AIDS,
tuberculosis, malaria, and other epidemics," and that the U.S. "respects
a trading partner's right to protect public health and, in particular, to
promote access to medicines for all, and supports the vital role of the patent
system in promoting the development and creation of new and innovative
lifesaving medicines." Accordingly, the Report states that the U.S. "respects
our trading partners' rights to grant compulsory licenses in a manner
consistent with the provisions of the TRIPS Agreement, and encourages its
trading partners to consider ways to address their public health challenges
while maintaining intellectual property systems that promote investment,
research, and innovation." The U.S.
"strongly supports" the WTO General Council Decision on the
Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement
and Public Health. The Report, in a
section relating to "pharmaceutical and medical device innovation"
cites "the policies of several developed trading partners, including
Finland, Germany, Greece, Hungary, Italy, Korea, New Zealand, Poland, Portugal,
Romania, Spain, Turkey, and Taiwan, on issues related to innovation in the
pharmaceutical sector and other aspects of health care goods and services." The U.S. is "seeking to establish or
continue dialogues with relevant trading partners to address these and other
sectoral concerns, and encourage a common understanding on questions related to
innovation in the pharmaceutical and medical device sectors," specifically
regarding China in this regard.

The Report contains in a final section a
review of U.S. activities in the WTO to resolve disputes with countries such as
China and the EU over trade issues.

Section II of Report is a detailed,
country-by-country discussion for each country on the Priority Watch List and
the Watch List, relating to the activities (or lack thereof) of each country
that results in placement of that country on these lists.

As it has for the past several years (and
across otherwise very different Administrations), the U.S. Trade Representative
Report provides insights into both the concerns of U.S. IP rights holders and
the Administration's intentions to work with, cajole, coerce, or threaten other
countries to increase protection for IP rights of U.S. IP rights
holders. The Report seems to revert to earlier attempts, generally no more
than partially successful, by the U.S. and other Western governments to
implement international trade treaties designed to increase IP rights
protection. It remains to be seen if that approach is continued in next
year's Report, or if U.S. trade policy will continue to swing through the
pendulum of the carrot or the stick regarding international intellectual
property rights enforcement.

For additional information regarding this and other related topics, please see: